Why mortgage insurance is so important

Many Singaporeans have a misconception that when it comes to buying a home, the only financial planning they need to do is to ensure they have enough for their home’s down payment and at least 12 months’ worth of mortgage savings to tide them through should they hit a rough patch.

Experts, however, disagree.

“Your home is typically the biggest and most important financial commitment you will ever make, therefore a key part of any personal financial plan is to ensure that it is protected in the event of unforeseen circumstances,” says Simon Newman, Chief Executive Officer for Aviva Ltd.

“Critical illness or disability can happen to anyone at any time and can make it impossible to continue working and making your home repayments. Equally, terminal illness or death is something most people like to think will never happen to them, but if it does, the burden of mortgage repayments is left to family members, who may not have the resources to continue to fund their home,” he added.

“It is essential to make sure that the owners or occupiers of the house are able to continue making payments at every period of the mortgage loan. This means during good times and also unforeseen times,” says Hakim Halim, a financial adviser with PromiseLand Independent Pte Ltd.

This is where mortgage insurance comes in.

A mortgage insurance ensures that the owners or occupiers of the property can continue owning the house despite the occurrence of a catastrophic event.

“Although the owner of the house may be critically ill, disabled or dead, the insurance company will provide the funds needed to pay off the outstanding mortgage loan. It provides the rest of the family with a peace of mind, having the assurance that they will not also have their roofs taken as well,” says Halim.

Considering that mortgage loans can typically be stretched up to 35 years or more, homeowners should never leave mortgage insurance out of their financial planning formula.

“These are scenarios we just don’t like to face, but the only way of having true peace of mind that your home is protected is with a mortgage insurance plan. This kind of plan typically allows you to choose the right amount of coverage that will pay off any outstanding mortgage loan and, of course, this means the amount of coverage you need decreases over time as you repay your loan,” says Newman.

Mortgage insurance plans

There are a few mortgage insurance plans that are currently available in the market for homeowners to choose from.

Aviva, for instance, has a “MyProtector Mortgage” plan which is a flexible, customisable insurance plan that enables homeowners to choose the options that suit their circumstances.

This means you only pay for what you need.

“We have a simple application process with a short health declaration and no lengthy questionnaires or medical examinations,” says Newman.

Over at AIA, the firm is offering an AIA Mortgage Reducing Term Assurance plan that will guarantee repayment of your outstanding housing loan in the unfortunate event of death, disability or terminal illness.

Meanwhile, HSBC is offering a MortgageProtector plan which, like Aviva’s, is also customisable while NTUC Income’s Mortgage Protection Plan covers both HDB and private properties.

“One can manage one’s risk by transferring this risk to insurance companies for a very small affordable premium. Unless one has huge savings and is able to pay off hundreds of thousands of dollars for their housing loan, there is no reason not to get a mortgage insurance to manage your risk and money,” says Halim.

Both HSBC’s and NTUC Income’s mortgage insurance plans are available through PromiseLand Independent Pte Ltd.